Regen chief executive, Merlin Hyman, gives his thoughts on Ofgem’s decarbonisation action plan.
Ofgem’s publication today of a “decarbonisation programme action plan” is a significant moment in the journey to a net zero energy system and a positive start from the new chief executive, Jonathan Brearley.
The regulator plays a key role in the energy system, steering billions of pounds of investment in networks and sending key signals to the market. The previous leadership wanted a clearer decarbonisation remit from government before acting. This sceptical tone from the regulator meant that the energy system was not fully preparing for the huge changes the UK’s net zero goal entails.
The new leadership has taken the common-sense view that delivering its remit to protect current and future consumers means backing decarbonisation. Statements in the new strategy like “This action plan is just the start of Ofgem’s drive to play our role in achieving net zero by 2050” send a positive message to the energy market as we come up to key decision points such as the RIIO2 price control process for energy networks.
Key actions include a stronger approach to decarbonisation in RIIO2: “we will introduce a suite of net zero investment and innovation mechanisms”. These include “a new net zero reopener” – a bit of Ofgem jargon that essentially means if we switch to EVs or heat pumps faster than expected the networks can ask for more money to prepare. There is also a commitment to provide “additional guidance” on the vexed question to enable “anticipatory investment” by networks – rather than waiting for new projects connecting to the network to trigger reinforcement.
One of the most significant aspects of the document is Ofgem starting to apply their logic of protecting consumers from investing in ‘stranded assets’ to a gas network whose future is in debate by questioning whether we should be investing four billion pounds replacing iron gas mains or considering extending the network to new areas.
Ofgem also seem to be addressing their blind spot on local authorities and regions developing energy strategies and climate emergency declarations, stating approaches “could include local authorities and communities being engaged in the development of local area energy plans to identify the best basket of solutions for a particular area.”
The impressive portfolio of innovation funded through network price controls is an area Ofgem can be proud of enabling and there is now a commitment to focus this innovation funding more on “whole-system decarbonisation challenges”.
Ofgem being Ofgem, this isn’t quite a full damascene conversion. There is little sign the regulator is up for more radical reforms as set out in our recent “Energy Networks for the Future” paper. There are plenty of caveats “We are willing to take some carefully measured risks, on issues such as…stranded assets”. Commitments to consider investments to prepare networks for zero carbon are all very well but the test will be whether any of the business cases presented are approved. There are also some glaring areas missing, such as any recognition that current reforms of how we pay for the network are helping stall investment in renewable electricity generation.
However, having spent the past couple of years pressing Ofgem on decarbonisation on every platform we have shared and every paper we have written, today is a day for Regen to welcome Ofgem to the zero-carbon journey. Much much better late, than never.